Obama and Senate Democrats have so far refused to negotiate over either issue, saying they have already agreed to locking in lower funding levels favored by the GOP and that paying the nation’s bills — which raising the debt ceiling would do -- is non-negotiable. Broader budget issues can be discussed after the government reopens and the debt limit is lifted, they said.
“Once we reopen government, I propose a House-Senate joint conference to work out the nation’s long-term fiscal challenges,” Reid said. “Both sides have priorities, but we want to move forward.”
The clash is starting to raise concerns in markets that the two sides will not find agreement before Oct. 17. Investors are already demanding much higher returns on U.S. Treasury bills that are paid back after that date, reflecting a higher risk assessment.
In daily market-monitoring discussions with Wall Street firms on Wednesday, Treasury officials said there were new fears among investors that a deal might not be reached until the final hours — which would cause intense market volatility.
A U.S. default, which has never happened before, would lead to a dramatic cut in federal spending and delays in Social Security checks and could undermine the traditional U.S. role as a financial safe-haven.
“There’s precedent for a government shutdown; there is no precedent for default,” Goldman Sachs chief executive Lloyd Blankfein said Wednesday after he and several other business leaders met with Obama at the White House. “We’re the most important economy in the world. We’re the reserve currency of the world.”
Both sides harbor hopes that the shutdown and the looming default deadline increase their political leverage.
“It’s pretty straightforward that the shutdown is hurting Republicans and weakening their standing,” a senior Democratic aide said.
But Republicans argue that the painful consequences of breaching the debt ceiling gives them more power to demand policy changes.
“This position that is being taken by the majority leader in the Senate, as well as the president, that there will be no negotiations, is not something that I think the American people would want,” said House Majority Leader Eric Cantor (R-Va.).
While polls suggest that Republicans are likely to blamed for the shutdown, both parties took steps Wednesday to contain any potential damage.
Republicans continued to press a piece-meal approach to funding the government, pursuing one-off bills that would fund the National Institutes of Health and other programs. Obama pledged to veto them, repeating his demand that Congress reopen the entire government.
Obama took other steps to avoid attracting flak for the shutdown, including taking advantage of a loophole that would allow many veterans to visit shuttered war memorials. Obama also canceled part of a trip next week to Asia to limit the amount of time he might be abroad.
And on Capitol Hill, lawmakers in both parties pledged to donate their congressional pay to charity during the shutdown. “I shouldn’t get a congressional salary while other federal employees are denied the ability to go to work,” said Sen. Lindsey O. Graham (R-S.C.).
Lori Montgomery, David Nakamura, Ed O’Keefe and Danielle Douglas contributed to this report.